DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

WASHINGTON, D.C. 20005 -- 202-347-2624 -- FAX 202-347-4631

Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, May 17, 2000

minister. He has said most Cabinet ministers will keep their posts.

Fed. Council Approves New Prosecutor Gen.

· The Federation Council today, in a vote of 114 to 10 with 9 abstentions, approved Vladimir USTINOV as Russia's new prosecutor general. USTINOV, who has served as acting prosecutor general, replaces Yuri SKURATOV. The latter was suspended by former President Boris YELTSIN in relation to a criminal case. The Federation Council, which has the right to hire and fire prosecutor generals, had rejected Kremlin calls to remove SKURATOV three times. SKURATOV was fired in April at then President-elect Vladimir PUTIN's request. Addressing the upper chamber, USTINOV pledged to continue, "the investigation into high-profile crimes... to the end. No one will escape punishment. We will carry all of the corruption cases through to their conclusion." He said that an interdepartmental investigation group has been set up to make the struggle against corruption more effective, and that top officials of the Prosecutor General's Office have been instructed to visit the scenes of serious crimes. USTINOV complained of slow investigation and political influences on them. He said, "We will not allow the law enforcement bodies to turn into political organs." The prosecutor's office has a poor record of solving serious crimes, which include gang slayings of dozens of businessmen, bankers and politicians, including the killing in 1998 of liberal lawmaker Galina STAROVOITOVA.

Russian Federation

Politics

Kasyanov Easily Approved By Duma

· Mikhail KASYANOV today was overwhelmingly approved by the Russian State Duma to the post of Prime Minister, in a vote of 325 to 55 with 15 abstentions. The confirmation in the first round of the President's candidate was widely expected, given the new relationship between the President and the Duma. KASYANOV's main task will be trying to revive the economy, which has been in decline for years. Some political leaders urged him to make combatting widespread official corruption a top priority. Others stressed the need to revive the country's moribund industrial sector. KASYANOV is expected to continue market reforms. He said today that reform must be tempered by concern for the millions of Russians who have seen their standard of living plummet in recent years. "Reforms must be energetic and consistent and well-balanced at the same time. But even the strongest government can't fulfill its tasks without the support of all society."

KASYANOV also cautioned that Russia's modest economic growth could easily reversed. The Prime Minister called for eliminating sales taxes and lowering income taxes, and said unprofitable enterprises owned by the state must be sold off. KASYANOV said that poorly performing banks must be closed and the banking sector made healthier. He called for raising the income of civil servants to curb bribery. KASYANOV is known in the west for his successful restructuring of Soviet-debt and persuading the London Club to write-off billions of dollars in Soviet loans, when he served as Finance Minister. KASYANOV has effectively led the Cabinet since early January, after PUTIN appointed him both acting finance minister and first deputy prime

Today's News Highlights

Russia

US Embassy Opens In Moscow

CB To Administer Most Bank

European Republics

Estonia-Latvia Energy Merger

Tyhypko Runs For Parliament

South Caucasus & Central Asia

Georgia To Join WTO In June

Georgia Seeks Pipe Investors

Aliyev On Caucasus Stability

Kashagan Reserves Grow?

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US Embassy In Moscow Opens

· A US Marine squadron raised the American Flag in front of the newly unveiled embassy building in Moscow on Friday. Construction on the building began 15 years ago, but was halted after it was discovered that Soviet builders had left it riddled with listening devices. American officials concluded that the bugging was so extensive that the building could not be used for diplomatic purposes. The structure remained empty for a decade. But in 1996, a decision was made to tear down the top two floors and add four new ones. The six lower stories were gutted to only columns and floors, to be used only for non-classified operations, the Associated Press reported. Only American workers were used in the new construction. US Ambassador James COLLINS called it, "`one of the most challenging construction projects ever undertaken by the Department of State." He added, "It has been a task...beset by the unexpected." "With the start of a new century and the transfer of leadership in Russia to a young, forward-looking new generation of Russian leaders, we are witnessing the opening of new possibilities to develop and strengthen US-Russian relations," COLLINS said.

Meanwhile, Britain's Princess Anne arrived in Moscow Monday to attend the opening of a new British Embassy. The Princess will visit the Kremlin and meet President Vladimir PUTIN. She will be joined by UK Foreign Secretary Robin COOK to open a new British Embassy in Moscow today.

Economy

Ruble = 28.27/$1.00 (NY rate)

Ruble = 28.4/$1.00 (CB rate)

Ruble = 25.35/1 euro (CB rate)

EBRD Sees Positive Improvements In Russia

· The European Bank for Reconstruction and Development (EBRD) Tuesday in its annual transition report said that short-term growth prospects for Russia had improved. It predicted that Russia's economy could grow by 4 percent in 2000, compared to only 1 percent growth forecast in its report of November 1999. However, the bank warns that the progress could be washed away if it fails to enact crucial reforms. According to the report, "The most surprising development in the region in 1999 was undoubtedly the pace of the recovery in the

Russian economy." It points out that the growth came as a result of the debt default, leading top analysts to conclude that the, "recovery may be temporary rather than sustainable over the medium term." The EBRD said that unless Russia's new administration, headed by President Vladimir PUTIN, seizes the opportunity to embark on real reforms, the effects could prove to be a one-off gain. It warned real wages would again start rising as well as the real exchange rate once more as a result of capital inflows and a stemming of capital flight, resulting in higher inflation and interest rates.

CB To Temporarily Administer Most-Bank

· Russia's Central Bank today has imposed a temporary administration on Most-Bank. The bank is part of the Media-Most Group, which was raided by police in the beginning of this week. The media group claimed that the raid was an attempt by the government to stifle free speech. Police said they were carrying out a criminal investigation and denied a political motive for the raid. The search was four days after President Vladimir PUTIN's inauguration. The Central Bank said in a statement that the temporary administration, effective immediately, was intended to stabilize Most-Bank's finances and to protect depositors and creditors, Reuters reported. Most-Bank's main creditor is the Central Bank.

Business

Yukos To Increase Orenburgneft Stake

· Yukos Oil Company said it expects to receive permission from the Anti-Monopoly Ministry to increase its stake in Orenburgneft to 25 percent. This will increase Yukos' control over the company. Yukos already holds a 16 percent stake in Orenburgneft, the main oil-producing unit of Onaco, a state-owned oil company. Yukos processes crude from Orenburgneft at its oil refineries in the Samara region. Orenburgneft produced 7.46 million tons of oil in 1999. The Russian government plans to sell 85 percent of Onaco in August. Yukos hopes to participate in that sale with a bid between $200 million to $400 million for the oil company. Yukos expects the terms of the Onaco sale to be announced before end of June. The Russian government plans to sell a 25 percent stake in state-owned Rosneft and a 19.68 percent stake in Slavneft later this year. Authorities also have been considering a

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proposal to create a state-owned oil holding on the basis of all three companies. Yukos Chief Executive Mikhail KHODORKOVSKY said, "The sale of the three companies separately is the opportunity to receive a maximum price for the assets."

fertilizers and refrigerated food products. Over 70 percent of all Lithuanian transit cargoes go through Klaipeda, which handled around 15 million tons in 1999, 48.8 percent of which were Russian cargoes, Reuters reported.

Ukraine's Econ. Min. Seeks Parliament Seat

· Ukrainian Economy Minister Serhiy TYHYPKO will run for a seat in parliament in an election next month and has taken official leave. Ukrainian law does not allow anyone to hold both a government position and a parliamentary seat. TYHYPKO is a former banker, who was in charge of coordinating economic reforms as one of a handful of deputy prime ministers during President Leonid KUCHMA's first term. His inclusion in the new government under former Central Bank chief Viktor YUSHCHENKO following KUCHMA's re-election last November cheered investors and Western donor countries eager to see faster reforms in the former Soviet state. TYHYPKO's office said the minister had left Kiev on official leave but declined to comment on his plans. Full parliamentary elections are not due until 2002, but nine seats have become vacant for various reasons. These seats will be contested in June.

South Caucasus & Central Asia

Georgia To Join WTO In June

· The World Trade Organization (WTO) is preparing to welcome, Georgia, its 137th member at its meeting next month. Georgia will be the fourth former Soviet republic to join the trade organization, after Latvia, Kyrgyzstan and Estonia. Georgia has been waiting for membership for four years. Membership to the WTO means Georgia, which exports citrus fruits, tea and textiles, will be bound by international trade rules and must take steps to lower tariffs and other trade barriers. There are about 30 countries seeking to join the WTO, including China, Russia, Lithuania and Oman.

Itera-Tbilgas Hold Privatization Talks

· International oil company Itera Holding met on Monday with Tbilgas and Tbilisi authorities to discuss the privatization of Tbilgas. Tbilisi representative Giorgi SHERADZE told Prime News Agency that US company AES has also expressed readiness to privatize Tbilgas. The company is to present

European Republics

Estonia-Latvia Plan Energy Cooperation

· Estonia's government on Tuesday said it plans to sign a letter of intent on May 26^th with Latvia to develop a cooperative relationship between power utilities Eesti Energia and Latvenergo, including a possible merger. Estonian Economy Minister Mihkel PARNOJA predicted, "The merged company could in future be strong enough to be listed on a bourse but we are not discussing this now. Right now we are only talking about close cooperation which could result in a merger." According to a government statement, "The cooperation allows [the firms] to maximize the credit-worthiness of the utilities internationally, which is instrumental in [obtaining] cheaper financing for required investments." The merger is aimed at complementing each side's specialty: Eest Energia's utilization of oil shale resources and Latvenergo's hydro power capabilities. Latvenergo President Karlis MIKELSONS said earlier this month Latvenergo has been researching ways of reducing electricity production costs and increasing safety by starting joint business with its Estonian and Lithuanian counterparts since 1998. In the future, the two also intend to approach neighboring Lithuania for possible cooperation with Lithuanian Energy. Latvian Economy Minister Aigars KALVITIS said Lithuania has been initially left out of the deal since it had already been partially sold off to private investors.

Klaipeda Opens Office In Moscow

· Lithuania opened a representative office of its key port of Klaipeda in Moscow on Monday, aimed at attracting Russian and former Soviet republics' cargo through its territory. Lithuania's Transport Minister Rimantas DIDZIOKAS at the opening ceremony said, "I hope that by combining our efforts we will be able to increase cooperation between our states." Klaipeda is Lithuania's main transport center in the eastern part of the Baltic Sea, with the capacity to handle over 20 million tons of different cargoes per year, including metals, oil products,

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the package of its proposals to Georgian side in the next two weeks. According to SHERADZE, the proposals of Itera and AES will be discussed during the beginning of June. Georgian side has estimated the value of 75 percent of Tbilgas shares to $20 million. The new owner of Tbilgas will also have to repay its debts amounting to $9.6 million.

Georgia Seeks Pipeline Investors

· The Georgian government is seeking investors to build the Baku-Tbilisi-Ceyhan Main export pipeline and of the Trans-Caspian gas-pipeline to broaden the nation's energy transport routes. Georgian International Oil Corporation (GIOC) Gia CHANTURIA announced the Georgian government's initiative at an international conference in Istanbul last week. According to him, the linking of the Baku-Tbilisi-Ceyhan pipeline with the Baku-Novorossiisk pipeline may be discussed. The linking of the Trans-Caspian gas-pipe with the Russian gas-pipe on the Black-Sea coast is also possible, CHANTURIA stressed. By the calculation of GIOC, $ 450 million are necessary for the building of those two pipelines. Both pipelines are to be built in a year, CHANTURIA told Prime News Agency.

Aliyev On Caucasus Stability

· In a letter responding to Turkish President Suleyman DEMIREL, Azeri President Geidar ALIYEV reiterated his country's desire for peace and stability in the Caucasus region. He said that a Caucasus stability pact could substantially contribute to the realization of peace and security in the region. DEMIREL, who stepped down from office Tuesday, has written farewell letters to foreign leaders. ALIYEV expressed gratitude to DEMIREL for his contributions to the development of relations between the two countries, adding that The Azeri-Turkish friendship will be ever lasting. The Azeri President pointed out that in order to establish lasting peace in the region, "The military conflicts in Southern Caucasus, the Azeri-Armenian [Nagorno-] Karabakh conflict in particular, should be resolved." Azeri Foreign Minister Vilayat GULIYEV expressed restrained opti

mism over prospects of the settlement of the Nagorno-Karabakh conflict. He is in Kiev meeting with Ukrainian President Leonid KUCHMA to discuss the situation in the Caucasus. Ukrainian Foreign Minister Boris TARASYUK said that Ukraine is ready to participate in the settlement of the Nagorno-Karabakh conflict if the warring sides agree to its involvement. Under their agreement and the OSCE's resolution, Ukraine is prepared to participate in the creation of a peacekeeping contingent in order to send it to Nagorno-Karabakh, the Ukrainian Foreign Minister said.

Kazakhstan's Big Oil Predictions Grows

· On May 10^th, Kazakhstan's Prime Minister Kasymzhomart TOKAYEV announced that the Kashagan field off the coast in the Caspian Sea could have oil reserves of up to 20 billion barrels. He cautioned that it was too early to make definite predictions. This week the estimated reserves have grown to between 8 billion to 50 billion barrels of oil. This oil find is believed to surpass the 1979 find at the Tengiz oil field, which is being developed by an international consortium led by Chevron Oil Corporation. The Tengiz field holds between 6 billion and 9 billion barrels in proven reserves. One administration official said, "The Caspian is beck on the map in a big way." The US State Department spokesman Richard BOUCHER cautiously said that the claims are based on the production of a single well. He also noted that the commercial interests involved have not made any announcements as yet. The nine member consortium, in which Exxon Mobile Corporation and Phillips Petroleum Companies are the only US partners, are expected to issue a preliminary statement shortly. Industry specialists point out that it could be another five years before the Kashagan offshore field begins producing oil. US Caspian envoy John WOLF said, "It [the discovery] is confirmed, it would be a tremendously important boost to the Baku-Ceyhan pipeline," The Washington Post reported. The US has backed multiple pipelines, which avoid Russia and Iran.

Paul M. Joyal, President, Editor in Chief Clifton F. von Kann, Publisher Jennifer M. Rhodes, Principal Editor

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